Random Thoughts on the Economy and the Stock Market - No. 5

 *-Contrary to what we have been thinking the stock markets as measured by the S&P 500 surged to  its highest level of the year and is just a touch off its August high. The stock market responded to strong employment growth in May and the signals coming out of the Federal Reserve that there will be the first pause in their rate hiking policy that began over a year ago. Further the White House and the Congress agreed to deal over the debt ceiling that postpones that issue well past the 2024 election. For that proviso alone Biden won the debt ceiling stand-off.

*- Obviously the May employment data indicates that my call for the recession starting that month was way off the mark. (See: Shulmaven: Has the Recession Arrived?) Nevertheless, with household employment down by 310,000, compared to a 339,000 increase in nonfarm payrolls, and the the unemployment rate rising to 3.7% all is far from perfect in the labor market.

*-  Little noticed last week was updated guidance from Equity Residential, the owner of 80,000 upscale apartment units,  which indicated that same store rents were up 6% from a year ago. This is hardly the news that the Fed has been looking for. Rents increasing anywhere near that level will make it impossible for the Fed to achieve its 2% inflation target.

*- Treasury bill and bond issuance is about to surge as the government reverses its special measures to avoid breaching the debt ceiling. This action will drain reserves from the system and put upward pressure on interest rates.

*- Net, Net. I would be a seller of the rally.